The Application of Conditional Value-at-Risk in Coal Purchasing Decision Considering Price and Demand Uncertainty

Abstract

Coal procurement is the core business part of coal trading enterprises. The effectiveness of the decisions directly affects their profitability. With the adjustment of China's energy structure, coal market faces the supply-demand imbalance and great uncertainty, which brings great challenge to the procurement decision of coal trading enterprises. How to make good purchasing decisions in a fluctuating market environment has become the most important task for coal trading enterprises. In this paper, with the goal of improving the profit of coal trading enterprises, we establish a coal procurement decision model in an environment where the contract market and spot market coexist by considering the risk preference of procurement decision makers and the uncertainty of coal demand and price in the process of procurement. Furthermore, Conditional Value-at-Risk (CVaR) is introduced to quantify the risk return and optimize the coal procurement decision. Case study is conducted to verify the effectiveness of the algorithm. The results show that the proposed coal procurement decision method considering demand and price uncertainty proposed in this paper is more practical, scientific and reasonable than the traditional and empirical method, which can effectively improve the enterprise's profitability and provide theoretical guidance for the optimization of coal procurement decision-making under market volatility.

Keywords: coal procurement, uncertainty, conditional value-at-risk, futures market

DOI: 10.7176/EJBM/17-4-11

Publication date: May 30^th 2025